2
2 Pipeline Infrastructure Critical to Balance Energy Supply and Demand Crude oil and petroleum products are supplied to major demand centers in the United States by over 200,000 miles of pipelines representing a $31 billion investment Pipelines transport over 38 million barrels of crude oil, feedstocks and petroleum products each day 17% of the nation’s freight is transported via pipelines for only 2% of the nation’s freight bill

5
5 Industry Organization Major integrated oil companies –Primarily focused on assets that support their proprietary operations –Have recently divested significant number of “non-strategic” assets Independent refiners and producers –Primarily invest in infrastructure directly upstream and downstream of their operations Joint ventures –Most are formed to share investment costs of major construction initiatives Independent pipelines –Proliferation of master limited partnerships reflects the need for new sources of capital Regardless of organizational structure, most pipelines are governed under the Interstate Commerce Act

8
8 East Coast (PADD 1) Highest petroleum consumption rates in the United States Highly dependent on imports for both crude oil and refined products supply –~100% crude oil –24% of refined products –Largest recipient of supplies from other regions South Atlantic region experiencing higher population growth rates than the slower growth New England region Largest concentration of oil- heated homes

10
10 Gulf Coast (PADD 3) PADD 3 is the origin of 90% of crude oil and 80% of the refined products shipped between U.S. regions Largest crude oil and refined products supply region in the U.S. –Only two OPEC nations (Saudi Arabia and Iran) have higher crude oil production than PADD 3 –No foreign nation has higher refined product output than PADD 3 Pipeline and terminal capacity in the Houston refining center constrained

11
11 Rocky Mountains (PADD 4) PADD II and III have historically supplied market to augment local production Small, but growing market Minimal demand for specialty products Infrastructure not well developed due to long distances, limited markets and high costs

12
12 West Coast (PADD 5) West Coast traditionally isolated from other U.S. supply regions Growing population continues to increase demand for products Alaska North Slope crude oil an important source of supply for West Coast refineries CARB rules isolate market, limiting supply options

13
13 Supply and Demand Overview Over 50% of all U.S. crude oil demand exists in the Gulf Coast region Production from the Gulf Coast region supplies the majority of Midwest and East Coast refined products deficit –New England region becoming increasingly dependent on foreign imports as South Atlantic region continues to grow –Midwest deficit expected to grow as regional refineries struggle to keep up with demand West Coast and Rockies regions fairly well balanced between regional refined products supply and demand

19
19 Summary The oil pipeline industry has responded well to supply and distribution challenges and integrity management issues Future challenges will require significant investment in pipeline infrastructure Continued rate flexibility will be paramount to attracting the capital necessary to successfully meet these challenges